LAWS2111 L4: Intention and Certainty
Certainty and Agreement
Uncertainty does not refer to complex documents which are difficult to interpret and predict
outcomes from. A contract which may have more than one meaning is not void for
uncertainty.
Introduction
 Objective approach
 Uncertainty as to classification of statements (eg offers, or invitations to negotiate)
 Distinguish complexity and uncertainty: Upper Hunter v Austrlaan Chilling (Barwick CJ
at 436)
 Uncertainty as to identity
o Use of nominees
o O’Halloran v Williamson
 Option to ‘O’Halloran or its nominee’
 Capable of ascertainment
Reference to non-existent terms
Fitzgerald v Masters
Cl 8: ‘The usual conditions of sale in use or approved of by the Real Estate Institute of New
South Wales relating to sales by private contract of lands held under the Crown Lands Act
shall so far as they are inconsistent (sic) herewith be deemed to be embodied herein.’
Dixon J:
 Absurd to say that parties, having agreed on everything essential, intended that that
agreement should be nullified if effect could not be given to cl 8.
 ‘Sever’ if irrelevant (meaningless verbiage! Apparently when using standard contracts,
real estate agents tend to just add in the price, but do not read through to check if there’s
anything irrelevant in the standard contract form).
Laybutt v Amoco
 An auction case.
 Pay deposit to ‘said agent ...’: Agent’s name was not filled in.
 Amoco that there an important bit of information was left blank and as such, the contract
is invalid.
 Courts said that it was clearly meant to refer to the other party of the contract.
 Severable if meaningless.
Contrast with if ‘conditions’ do exist:
Scammell v Ouston
 Sale of car on ‘hire purchase terms’, but there are many types of ‘hire purchase terms’.
 This was considered too uncertain to be enforceable.
o Agreement was incomplete.
Terms incompletely expressed
Whitlock v Brew
 Buyer agrees to buy land from seller.
o Cl 5B to grant lease to Shell for mineral extraction
 ‘on such reasonable terms as commonly govern such a case’
 Arbitration for disputes as to ‘interpretation or operation’
Held:
 Cl 5 was void for uncertainty. It’s impossible to say what was ‘reasonable terms’.
o Period and rent uncertain (no formulae provided), have been left open.
o One way of resolving this issue would be to say that it was perfectly certain because it
was to be left to the arbitrators, but the arbitrators’ job isn’t to construct an agreement
for you, just to decipher what your agreement means regarding terms hat have not been
agreed upon. Arbitrators may not select terms.
o Could the uncertain part be severed?
 Depends on intention: Cl 5 not vague or meaningless
 No severance as sale was on the basis that the lease must be granted.
o So whole agreement was void for uncertainty.
Quarante v The Owners Strata Plan No. 67212
 Quarante was a developer of a strata title property
 ‘Reimbursement conversation’ took place with strata title owners Co (O)
o What to do about refurbishment of facade?
Held:
 Parties went no further than agreeing it would be a good idea for the Works to be carried
out by Quarante and for reimbursement of the cost by O.
 No discussion of, as examples:
o likely cost of Works;
o mechanisms for O to control costs;
o procedure and timeframe for O to reimburse Q;
o means by which O was to be put in funds to pay for Works;
 Post-contractual conduct is admissible on question of whether contract formed.
o Q still advertised lots without mention of costs contribution
o Q knew O had not set aside funds
 Objectively
o Reimbursement Conversation not intended to constitute a binding contract
o Incomplete
cf Hillas v Arcos, p 33 (Lord Wright):
 1930 Option to buy “100,000 standards [of timber] in 1931”
o Function of Court
o Course of dealing
 No contract (contained a clause which said that after a year, the buyer had an option to buy
100,000 blocks of timber.
 People often use their own language to make documents, which does not need explanation
because both parties understand what it means even if an outsider does not. Courts should
not aim to find defects in every document; rather, they should aim to uphold it if it is clear
that bother parties originally intended to make a contract.
Geebung Investments v Varga Group Investments, p 551, Kirby P
 Courts should be the upholders of bargains and not their destroyers, and should avoid an
‘over-nice approach’ to the arrangements between the parties which results in a
disharmony between the parties’ reasonable expectations and what the law provides.
Gap filling
 Common law has found implied terms.
o Fills necessary gaps in existing contract.
 Where necessary, to give business effect.
o But they may not create a contract where there is no agreement on essential terms.
 Statutory gap filling:
o Sale of Goods Act 1896 (Qld): implied terms
 s 11(2) price
 s 16 sale by description
 s 17 goods shall be reasonably fit for purpose
o Competition and Consumer Act 2010 (Cth)
 Australian Consumer Law: statutory guarantees
 s 56 supply by description
 s 54 goods to be of acceptable quality
Uncertainty and essential terms
Geebung Investments v Varga Group Investments (Kirby P):
If business people have agreed upon essential terms and shake their hands upon their agreement, it
is normally the business of the common law to uphold and enforce that agreement. It should not be
the purpose of the law to rifle through the terms to find some particular which has not been agreed,
which a party later seeking to renege relies upon in order to escape its bargain.
 In simple, straightforward cases, Courts may see if agreement on essential terms
o Thompson v White:
 Simple joint venture to build a house for profit
 Court was not impressed by the attempts to point to complex terms usually agreed in
major joint ventures (security, indemnities, sharing losses etc).
 The uncertainty claim requires an omission of term ‘without which the contract
cannot be enforced’.
o Ormwave Pty Ltd v Smith
 Plaintiff was a chef on Captain Cook Cruises boat in NSW. Ship was renamed and
moved to Cairns.
 Were the terms not settled?
 Pay (use award basis);
 Hours and duties (based on previous employment experience).
 There is a difference between leaving something open and then flagging it to get out
of your contract and parties coming to you with an agreement which has missing
terms which have created a problem for them.
 Difficulty: always a question of degree.
o Can always point to some matter not decided.
o More difficult if deliberately leave matters open.
Geebung Investments v Varga Group Investments (Kirby P):
Existence of matters of importance in which the parties have not reached consensus in their
informal agreement will render it less likely that they intended immediately to be bound before the
execution of a formal document.
Terms left open: General principles
If parties expressly leave a matter to be decided in the future, is there a binding contract now?
 It may be easier to say there is a certain contract now if it provides for a formula (ie test)
and machinery (eg arbitration) for resolving the matter.
No Formula
No Machinery
e.g. Renew lease at rent to be agreed
Formula
No Machinery
eg. reasonable rent
No Formula
Machinery
e.g. Arbitration, or surveyor’s report
Formula
Machinery
eg reasonable rent
e.g. arbitration
Defective machinery
Hall v Busst
 Option to repurchase land if there is a possible resale.
 Price? Cl 5 formula: £3157 [sale price]
o Plus: value of all additions and improvements (option date)
o Less: value of deficiencies and depreciation
 Price was too indefinite to be enforced (when option may be exercised).
o Dixon J: what is the external (ie objective) standard?
o Fullagar J: would need court action to determine price.
 The machinery was not good enough because how was the court supposed to know what
the additions or deficiencies were worth?
Sudbrook v Eggleton
 Sale price to be agreed by two valuers.
o Appointed by landlord and tenant
 Landlord refuses to appoint.
o Uncertain?
Held:
 Formula would be reasonableness
o Construction of term (not implication)
 Machinery
o Court will operate if necessary
 Change in court attitudes?
o Cf Lord Russell (tradition view)
Booker v Wilson Parking, HC Brennan J
 Reconsider Hall v Busst.
Terms left open
 Can you have a contract to agree (eg on price)?
o May & Butcher v R
 Price ‘to be agreed’ from time to time.
 General arbitration clause for ‘disputes’
 Not a specific reference for price. Uncertain.
 No uncertainty if choice is given to one party.
o Godeke v Kirwan
 Land sale contract: ‘If required by vendor we will execute further [document]
containing any ..other conditions as they may reasonably require’.
 Held: Buyer had left matter to vendor’s solicitor to choose. The standard was
reasonableness. Grrr.
o Timmerman v Nervina
 eg Repurchase ‘at cost’, ‘at auction’, or ‘fair price’
 ‘Election’ possible.
o Price variation clauses (if you put a term saying that the price will be $X + any price
adjustment the seller fixes. Is this uncertain? Nahhhhhhhhh. Because the parties have
agreed to this.)
Terms left open
 Courts will try to give effect to an agreement where there is performance.
o In effect, may say formula is ‘reasonableness’ (as in the previous dealings).
 British Bank of Foreign Trade v Novinex
o What’s the price to pay? The contract says that they’ll ‘pay an agreed commission on
future business’.
o Denning J (uncertain); Court of Appeal (approach of a jury)
 Foley v Classique Coaches
o D to buy all petrol requirements at ‘price to be agreed from time to time’.
 Three years performance already.
 Arbitration clause.
o Held: contract.
Negotiation in good faith?
 Can there be an implied obligation to complete negotiations in good faith?
 Walford v Miles
o Negotiations subject to contract: lock out agreement?
o Implied agreement to negotiate in good faith?
o Lord Ackner
 Inherently adversarial process.
 No duty to negotiate in ‘good faith’.
 As Court unhappy slash unable to decide if good reason to withdraw from
negotiations.
 D must not make misrepresentations.
 Contrast with:
o Interpretation of terms already agreed.
 Perform in good faith.
o Requiring ‘good faith’ during negotiations
 Some legal systems do require this.
 English common law relied on patchwork of remedies (eg misrepresentation, duress)
 Australia may provide some remedies through estoppels.
 Can there be an express agreement to negotiate?
Coal Cliff v Sijehama
 Coal mine joint venture agreement.
o 1980 Heads of agreement signed, envisioning a later joint venture agreement.
 Parties to:
 ‘proceed in good faith to consult together upon the formulation of a more
comprehensive and detailed Joint Venture Agreement’.
 Much of language was vague and provisional, but headed:
 ‘consulting and negotiating ... shall not prejudice the full and binding effect of
what is now agreed’
 1981-1985 14 drafts
o “net profits before tax” was one key issue
 Held:
o Heads of Agreement went beyond negotiation stage
o But good faith and consultation obligation was too illusory, vague and uncertain.
Examples:
 No external arbitrator
 Many issues still to be resolved after 3 years
 Court ill equipped to fill in, BUT
 Kirby P (Waddell agrees)
o Some agreements to negotiate in good faith can be binding
o Needs to be clear, or part of wider arrangement*
o External standard may be relevant
 Handley JA
o More cautious like Lord Ackner
o Negotiations are for parties’ discretion
 Withdraw, continue, accept, counter-offer or reject, compromise or refuse, trade off
concessions for gains, be fast or slow
 Promise to negotiate in good faith is illusory
Aiton Australia Pty Ltd v Transfield
 Cl 28 Dispute resolution procedure
o P and D “shall make diligent and good faith efforts to resolve all disputes” [stages]
 Manager meetings in time for “good faith… attempt to resolve issues”
 Mediation “use all reasonable endeavours in good faith to expeditiously resolve
dispute by mediation”
 Expert Resolution Process
o Not uncertain as
 If withdraw from negotiation, a
 Certain procedure is established for next stage of resolution
o [Held uncertain because remuneration of mediator not covered]
Express good faith in negotiation obligation
Strzelecki Holdings v Cable Sands [2010] WASC 222 (WACA)
 C mining company (seller of land) : S land developer (buyer for housing)
 Radioactive tailings: remediation needed
 Memorandum of Understanding (MOU) drawn up
o “9. If the parties acting in good faith are unable to conclude a contract for the sale
and purchase of the Land between themselves within 30 days then MOU will cease
to be of any force”
 No agreement in 30 days: breach of good faith?
o C asked for indemnity and $25 million, 20 year bank guarantee if S cleans up site
 Held:
o Good faith meant to act honestly 'within the framework of fidelity to the bargain‘
o Not required to act in the interests of the other; or to give in to other
o Need to
 Subject themselves to the process of negotiation
 Keep an open mind in the sense of being willing to consider proposals
 Put forward options for the resolution of any differences
o Must have freedom to engage in self-interested behaviour so long as they do so
honestly and in a manner allowing negotiations to proceed
 Merely putting up a proposal which other party or court considered unreasonable
does not provide evidence allowing court to infer a lack of honesty
 Provided party making proposal does not rule out negotiations about the proposal
o ie court does not examine objectively the self interest of the parties
o Here, there was no breach.
It’s doubtful whether there is a general obligation to act in good faith. But if there is express
good faith within parties, courts will give effect to it. But it’s rather limited (see Strzelecki
case).
Good Faith Internationally
Vienna Convention on International Sales
 Art 7 “in interpretation of this convention regard is to be had to…the observance of good
faith in international trade”
Draft European “Common Frame of Reference”
 Duty to negotiate in accordance with good faith and fair dealing
 If break off negotiations contrary to good faith and fair dealing, liable for loss caused
 Contrary to good faith and fair dealing, if enter or continue negotiations with no real
intention of reaching agreement
Reflects Civil Law tradition
 General doctrine of pre-contractual liability
o eg based on good faith, or
o Fault (culpa in contrahendo)
 Remedy often for reliance – wasted expenditure
 Dutch law
o “Protects” at stages in negotiation.
o Final stage D cannot withdraw, when P reasonably expects that contract would be
concluded.
o Compensate for all expectation loss if D wrongly breaks off negotiations.
o Looks like Australian law Waltons v Maher (1988) [estoppels]
Conditional agreements
Theory
Condition:
 contract term; or
 factual event (‘subject to approval’)
Condition precedent: contract cannot come into existence until condition is first satisfied.
Condition subsequent: contract is binding now, but may be ended by a condition [event]
happening.
Condition precedent to performance: contract binding now, but performance only triggered
by a condition [event] happening.
‘Subject to Contract’
 Purpose of ‘subject to ...’ clauses?
o Trying to prevent being bound too early.
Masters v Cameron:
1. Immediately bound: Later written record: CBA v Dean (1983).
2. Complete Agreement: Performance conditional on later document: Niesmann v
Collingridge (1981)
3. No intention to conclude bargain unless or until formal contract has been drawn up:
Masters v Cameron (1954).
4. Intend to be bound now, but intention to supersede by later agreement. (later added):
Strzelecki Holdings Pty Ltd v Cable Sands [2010]
Case 3: No agreement without formal document
Masters v Cameron
 S and B sign document
o S agrees to sell farm £17,500 [details given]
o “This agreement is made subject to the preparation of a formal contract of sale which
shall be acceptable to my solicitors on the above terms…and I hereby agree to purchase
the above property on the above terms and conditions”
 Held
o If use “subject to contract” formulae
o Prima facie creates overriding condition
 Agreement is intended basis for future contract
 Not as constituting a contract already
Case 1: Immediately Bound: Later written record
CBA v Dean (1983)
 D2 signs document with alterations and returns [counter-offer]
 Bank unhappy with crossing out, and undated
 28 Dec Bank wrote asking D2 to re-execute the document
o Bank prepared to accept D2 amendments. 'Please return ASAP’
 D2 never executed the document
 Q Was 28 Dec Bank letter an unconditional acceptance?
 Held
o Here unequivocal acceptance
 No intention to postpone contract
 Wanted to ensure a better record of the agreement – “clean copy”
Case 2: Complete agreement: performance conditional
Niesmann v Collingridge (1921) 29 CLR 177
 Option to buy
 Price payable 'on signing of contract’
 Held
o Binding agreement
o Signing not a condition precedent to agreement
o Condition precedent to performance
 ie B did not need to pay until signature
CBA v Dean
 D refusal to sign could be breach
Case 4: Binding now, later supersede
Anaconda Nickel v Tarmoola (2000) 22 WAR 101
 Document
o “forms a heads of agreement which constitutes an agreement in itself to be replaced by
a fuller agreement not different in substance or form”
 Held
o Intent to be bound immediately by present terms
o Expecting later substitution
Strzelecki Holdings Pty Ltd v Cable Sands [2010]
 Binding MOU (with good faith obligation)
 Later sale if negotiations successful
Subject to finance
Meehan v Jones
 Roma oil refinery and sale contract signed 14 March: “Special Condition”
o “subject to…purchaser receiving approval for finance on satisfactory terms”
o “if not satisfied by [31 July] then this contract shall be …at an end”
 Some delays
o 23 July S agrees to sell to B
o 30 July P gives notice that condition complied with [ie finance OK]
 S refused to perform: reasons?
o Too vague and uncertain
o “Satisfactory” to both left matters to be agreed
o eg as to amount, term of loan, rate of interest
 Held by HC
o Not uncertain
o Condition inserted for benefit of P; P has choice
Obiter from Meehan v Jones
 Are there any fetters on P right to decide if satisfactory? Open !?
 P’s satisfaction to be objective or subjective?
o Objective satisfaction (ie reasonable person)?
 No: Gibbs, Wilson, Murphy
 Yes: Mason
o Subjective satisfaction?
 P to act honestly (ie genuine dissatisfaction)
 Yes: Gibbs, Mason, Wilson
 No: Murphy
 Reasonable steps to seek finance?
 Yes: Mason, Wilson
 No: Gibbs, Murphy
Other ‘subjects’: Examples
 REIQ Contract 2007
o Cl 3 Finance
o Cl 4 Building and pest report
 ‘Subject to survey’ (does this mean ‘unless there is a bad survey’ or that this is so until a
survey is done)
 ‘Subject to head office approval’
 ‘Subject to Government approval’
‘Lifting’ the ‘subjects’ or ‘conditions’
 Ideally sould be express ‘lifting’
o ‘Unconditional’
o ‘Subject removed’
o ‘Subject cleared’
 What if later email no longer has express ‘Subject to’ statement?
o Can there be a lifting of subject by conduct?
 eg Subject to contract
 Need clear evidence of waiver of right to document
 eg performs contract.
Intention to create legal relations
 Even if there is an agreement, do parties intend it to be legally binding?
o Principle independent of offer and acceptance
o ‘Voluntary assumption of a legally enforceable duty’
 Dixon J in Australian Woollen Mills
o ‘Intention’ always judged objectively
o Need identifiable parties, certain terms, consideration.
o ‘Circumstances may show parties did not intend, or cannot be regarded as having
intended, to subject their agreement to the adjudication of the courts’.
 South Australia v Commonwealth (Windeyer J)
 The ‘presumptions’? In old cases, it was presumed that ...
o Family and social agreements not meant to be binding.
o Agreements in commercial context intended to be binding.
Presumptions and categories
 Not all cases fall into neat contexts
o eg Family/social – Commercial
 Ermogenous v Greek Orthodox Community of SA Inc. (2002 HC)
o Caution in using ‘presumptions’ as to parties intentions
 Merely a burden of proof issue – intent or not?
o Examine all the circumstances
 Shahid v Australasian College of Dermatologists [2008 FCFCA]
o Ermogenous not considering business contexts but religion
o In business context, person proposing that the parties did not intend to create legal
relations bears the onus of so proving
o Education dispute here was sui generis category
o Look to intentions from conduct